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Under the Medicare program, the Centers for Medicare & Medicaid Services (CMS) and its contractors paid over $400 billion in Medicare benefits in calendar year 2006. GAO was asked to determine if Medicare providers have unpaid federal taxes and, if so, to (1) determine the magnitude of such debts, (2) identify examples of Medicare providers that have engaged in abusive or potentially criminal activities, and (3) determine whether CMS prevents delinquent taxpayers from enrolling in Medicare or levies payments to pay taxes. To determine amount of unpaid taxes owed by Medicare providers, GAO compared claim payment data from CMS and tax debt data from the Internal Revenue Service (IRS). In addition, GAO reviewed policies, procedures, and regulations related to Medicare. GAO also performed additional investigative activities.

Our analysis of data provided by CMS and IRS indicates that over 27,000 health care providers (i.e., about 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling over $2 billion. The $2 billion in unpaid tax debts only includes those debts reported on a tax return or assessed by IRS through its enforcement programs. This $2 billion figure is understated because some of these Medicare providers owed taxes under separate tax identification numbers (TIN) from the TINs that received the Medicare payments or they did not file their tax returns. We selected 25 Medicare providers with significant tax debt for more in-depth investigation of the extent and nature of any abusive or potentially criminal activity. Our investigation found abusive and potentially criminal activity, including failure to remit to IRS payroll taxes withheld from their employees. Rather than fulfill their role as "trustees" of this money and forward it to IRS as required by law, these Medicare providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Furthermore, individuals associated with some of these providers at the same time used payroll taxes withheld from employees for personal gain. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some providers received Medicare payments even though they had quality-of-care issues, such as losing track of a patient in their care who has not been found. CMS has not developed a policy to require contractors (1) to obtain consent for IRS disclosure of federal tax debts and (2) to screen providers for unpaid taxes. Further complicating this issue, absent consent by the taxpayer, which CMS does not require, federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors. IRS can continuously levy up to 15 percent of each payment made to a federal payee--for example, a Medicare hospital--until that tax debt is paid. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for calendar year 2006, the government lost opportunities to potentially collect over $140 million in unpaid taxes.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: In June 2010, Public Law 111-192 was enacted, requiring a CMS-Internal Revenue Service (IRS) data match to identify the amount of delinquent tax debt for which a notice of lien has been filed and owed by Medicare providers applying for enrollment or re-enrollment as a Medicare provider of services or supplier under the Medicare program . The legislation also requires CMS to "take into account" this information "in determining whether to deny" an enrollment or reenrollment application or "to apply enhanced oversight." This will help ensure providers with delinquent tax debt are subject to enhanced oversight and may prevent their enrollment or re-enrollment in Medicare.

Recommendation: To enhance program integrity, the Administrator of CMS should consider (1) issuing guidance requiring Medicare contractors to determine to the extent feasible if prospective Medicare providers (including any Medicare providers that reenroll into Medicare) have delinquent federal taxes, including obtaining applicant consent to inquire as to tax debt status from IRS, and (2) using the results of those inquiries in determining whether to enroll such providers into the Medicare program. In making this determination, CMS could also build in consideration of the potential adverse effect that this requirement may have on Medicare's ability to provide health care to the elderly and other Medicare beneficiaries.

Comments: As of September 2011, CMS reported that 96 percent of total Medicare program payments are accounted for in the CMS standard accounting system know as the Healthcare Integrated General Ledger and Accounting System (HIGLAS), and all (100 percent) of Medicare FFS payments will be subject to FPLP by 2012. By implementing the FPLP for all Medicare FFS payments, CMS has helped the federal government to collect unpaid taxes through Medicare payments made to delinquent taxpayers.

Recommendation: The Administrator of CMS should incorporate all Medicare payments into the continuous levy program as expeditiously as possible.